Make the Most of Your Money
Taking steps to minimize your tax return may sound crazy to most people, but there many benefits to using this tactic to make the most of your money. Most people believe that getting a large tax return at the end of the year is simply the way things work. I’m here to share with you the truth, that it is just not the way it should be.
What Happens to Your Money
Are you one of the many people that get a large return back at the end of the year? If you are, you are like most people and are very happy about this come tax season. Many people see a large return at the end of the year as a savings account for themselves. Little do most people realize, that they are lending their hard earned money during the year to the government as an interest free loan. This isn’t a small sum of money we are talking about either. The average refund for the 2019 tax year was $2,979, according to the IRS. In many cases you could do better investing this money on your own during the year. This is vitally important to people that are struggling to make ends meet each month. The money isn’t doing you any good if you are loaning it to the government. Wouldn’t taking steps to minimize your tax return and have the money now make things even a little easier every month? Isn’t any interest is better than no interest?
Simple Steps to Minimize Your Tax Return
The biggest argument from most people on maximizing their withholdings is that they are more likely to simply spend the money during the year than invest it. A great solution is to automate your savings by doing automatic payroll deductions into a separate savings account. You already don’t see the money during the year, so if you take a few steps to adjust your W-4 and then set up an automatic transfer to a savings account with a decent interest rate, then you will make the whole process much easier on yourself. This is a great way to start building up an emergency fund, if you don’t already have one. If you do already have an emergency fund, then you can use the money to pay down debt or another goal you may have in mind. Another option is to direct the extra money into your retirement account.
In addition to this current review of your exemptions, you will also want to review your exemptions any time you have a major life event, such as a marriage, a change in the number of dependents, or a change in the amount of deductions or tax credits you may be expecting for the coming year. The ideal situation involves changing your W-4 from your employer so that your withholdings match your owed taxes as closely as possibly. You do this by adjusting the exemptions on your W-4. This allows you to take home as much money in your paycheck each week as possible, without owing any taxes at the end of the year. The honest truth is that many people are not familiar with exemptions and just aren’t comfortable adjusting the exemptions past 0 on their W-4. Use the worksheet on your W-4 to help guide you. The IRS also has the W–4 on their website.
First Hand Experience
I have personally been reviewing my own exemptions for the last couple of years in an effort to minimize my tax return. Its taken me a couple years because I was being cautious and wanted to ensure that I didn’t end up owing taxes at the end of the year. I was also working on my own budget and savings habits in an effort to make the most of my money. Last year, the money gained from reducing my exemptions allowed me to start contributing to my employer-sponsored 401K at the level my company matches. This year, I was able to again minimize my tax return and began having that amount automatically transferred to an online interest-bearing savings account.
The great news is that you can change your exemptions any time during the year, so you don’t have to use tax season as a reason for waiting! Take just a little bit of time and review your own exemptions. You might just be surprised how simple it is to minimize your tax return and make the most of your money.